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Underwood v. City of Chicago

Court of Appeals of Illinois, First District, First Division

June 29, 2017


         Appeal from the Circuit Court of Cook County. No. 13 CH 17450 Honorable Neil H. Cohen Judge Presiding

          JUSTICE SIMON delivered the judgment of the court, with opinion. Presiding Justice Connors and Justice Harris concurred in the judgment and opinion.


          SIMON JUSTICE.

         ¶1 This case is back before the court following another round of rulings by the circuit court concerning plaintiffs' rights to healthcare coverage. Plaintiffs are multiple categories of City of Chicago retirees who have participated in the City's medical benefits plan and received some level of healthcare coverage from the City over the years. The City has undertaken to eliminate the healthcare benefits that many of the plaintiffs previously enjoyed; while the plaintiffs have fought to retain the benefits under a number of legal and equitable principles. The circuit court largely ruled in favor of the City and dismissed most of the plaintiffs' claims. We affirm in part, reverse in part, and remand the case for further proceedings.

         ¶ 2 BACKGROUND

         ¶ 3 The genesis of this case dates all the way back to the 1960s, but most of the relevant events occurred between 1983 and the present. The City has long been providing fixed-rate subsidized healthcare to its retirees through the City of Chicago Annuitant Medical Benefits Plan. In 1983, the City agreed to provide a subsidy for the Police and Firefighter funds for a healthcare benefit. Under that plan, the respective annuity and benefit funds (the Funds) would provide a subsidy to the City to cover a set amount of the participants' healthcare ($55 per month for non-Medicare-eligible retirees and $21 per month for Medicare-eligible retirees). Ill. Rev. Stat. 1983, Ch. 108-1/2, par. 8-167.5 (eff. Jan.12, 1983). The contributions themselves were funded by a City tax. The municipal employees and the laborers and retirement board employees were brought under the same construct as the police and firefighters in 1985, just at a smaller average subsidy ($25 per month). Ill. Rev. Stat. 1985, Ch. 108-1/2, par. 11-160.1 (eff. Aug.16, 1985).

         ¶ 4 In 1987, the City began its quest to stop subsidizing retiree healthcare. The City notified the Funds that it would stop providing healthcare benefits on the first day of 1988, and it filed suit in the circuit court of Cook County (City of Chicago v. Korshak, No. 87 CH 10134 (Cir. Ct. Cook Cty.)) seeking a declaration that it had no obligation to continue providing coverage. The Funds counterclaimed seeking a declaration that the City was required to continue covering healthcare costs. A group of retirees intervened and were certified as the "Korshak subclass." The Korshak subclass is comprised of individuals that retired on or before December 31, 1987. The "Window subclass" was certified later and is comprised of employees that retired after December 31, 1987, but before August 23, 1989. The retirees counterclaimed seeking a declaration that they were entitled to lifetime healthcare coverage.

         ¶ 5 Before that case was adjudicated on the merits, the City and the Funds settled. The individual retirees were not parties to the settlement. The settlement, which was adopted legislatively as part of the Pension Code (40 ILCS 5/5-167.5 (as amended by P.A. 86-273, § 1, eff. Aug. 23, 1989)), amended the 1983 and 1985 fixed-rate subsidy statutes to set forth the City's new obligations. The amendment stated that for the period from 1988 through the end of 1997, the Funds would continue to pay a subsidy and the City was also responsible for 50% of the retirees' healthcare coverage costs. The parties agreed to "negotiate in good faith toward achieving a permanent resolution of this dispute" until the end of the settlement period and that "[f]ailing agreement, the parties shall be restored to the same legal status which existed as of October 19, 1987 ***." The amendment to the Pension Code explicitly stipulated that the obligations set forth therein "shall terminate on December 31, 1997." 40 ILCS 5/5-167.5 (d) (as amended by P.A. 86-273, § 1, eff. Aug. 23, 1989). The trial court in that Korshak case did not address the individual participants' claim for permanent coverage and imposed the settlement agreement on them.

         ¶ 6 When no permanent solution was reached by 1997, the City again sought to end its coverage obligations altogether. The case ended up before this court where we held that "under the express terms of the settlement agreement, the [retirees] are entitled to reargue the claims originally asserted" in the 1987 case. Ryan v. City of Chicago, No. 98-3465, at p. 7 (Rule 23 Order June 15, 2000). Again before the claims were adjudicated on the merits, the parties settled. After settlement extensions and corresponding amendments to the Pension Code in 1997, 2002, and 2003 (P.A. 90-32, § 5, eff. June 27, 1997; P.A. 92-599, § 10, eff. June 28, 2002; P.A. 93-42, § 5, eff. July 1, 2003), all of which were substantially similar to the first settlement and all with the same limiting language and expirations, the City conveyed its intent to end healthcare benefits for retirees once and for all.

         ¶ 7 In the 2003 agreement, the parties agreed that, at the expiration of that agreement, "the City may offer additional healthcare plans at its own discretion and may modify, amend, or terminate any of such additional healthcare plans at its sole discretion." The agreement created the Retiree Health Care Benefits Commission ("RHBC") that would make recommendations concerning the state of retiree health care benefits, the costs of those benefits, and issues affecting the retirees' benefits to be offered after July 1, 2013. The 2003 agreement was set to expire in 2013. Before the agreement expired, the City notified retirees that, on the recommendation of the RHBC, once the agreement expired in 2013, the City was going to begin to reduce healthcare benefits until January 2017, at which time the City would end the plan in its entirety. Certain classes of employees, like those in the Korshak and Window subclasses, would retain healthcare benefits under the City's new plan but others, particularly those hired after 1989, would not.

         ¶ 8 Plaintiffs attempted to revive the 1987 lawsuit in the circuit court of Cook County, but the court ordered them to interpose their claims in a newly-filed complaint (this case). Once the new case was filed, the City removed it to federal court. After the federal district court dismissed the retirees' claims (Underwood v. City of Chicago, No. 13 C 5687, 2013 WL 6578777, at *17 (N.D. Ill.Dec. 13, 2013)), the United States Court of Appeals for the Seventh Circuit affirmed the dismissal of the federal claims, but remanded the matter to state court for a resolution of the "novel issues of state law." Underwood v. City of Chicago, 779 F.3d 461, 465 (7th Cir. 2015).

         ¶ 9 Back in state court, the City filed a motion to dismiss. The plaintiffs' third amended complaint has claims for: improper diminution of pension benefits under the Illinois Constitution (count I), breach of contract (count II), estoppel (count III), impairment of contract (count V), and equal protection and special legislation challenges to the City's plan of action (counts VI and VII).[1] The parties and the courts have discussed the retirees as broken down into four subclasses: (1) the Korshak subclass, made up of people who retired before December 31, 1987; (2) the Window subclass, made up of people who retired between January 1, 1988 and August 23, 1989; (3) subclass three, made up of people who retired on or after August 23, 1989; and (4) subclass four, made up of people who were hired after August 23, 1989.

         ¶ 10 While the motion to dismiss was still pending and before the trial court entered a judgment on the merits of plaintiffs' claims, plaintiffs filed a motion for a preliminary injunction. The trial court denied the sought-after injunctive relief. Plaintiffs appealed that ruling and, after examining plaintiffs' claims insofar as they related to preliminary injunctive relief, we affirmed. Underwood v. City of Chicago, 2016 IL App (1st) 153613, ¶ 32 (appeal denied, No. 121498, 2017 WL 603503 (Ill. Jan. 25, 2017)).

         ¶ 11 In resolving the motions to dismiss, the trial court held that plaintiffs could not state a claim on the 1987, 1997, or 2003 amendments under the Illinois Constitution's pension protection clause because the settlements on which the claims are based provided only time-limited benefits. The trial court did, however, hold that the members of the Korshak subclass, the Window subclass, and subclass three could state a claim based on the 1983 and 1985 amendments that did not contain the same limiting language that the subsequent amendments did. The trial court dismissed the remaining claims, denied the plaintiffs' motion for class certification, and made a finding that there was no just reason to delay appeal of its judgment on the claims it dismissed (See Ill. S.Ct. R. 304(a)). The retirees later filed a renewed motion for a preliminary injunction, which the trial court also denied.

         ¶ 12 The case is now before the court on an interlocutory appeal principally concerning the propriety of the trial court's ruling on motions to dismiss filed by the City and the Funds. The retirees' renewed request for injunctive relief is also part of their appeal.

         ¶ 13 ANALYSIS

         ¶ 14 The trial court dismissed the retirees' claims under section 2-615 of the Illinois Code of Civil Procedure. A section 2-615 motion to dismiss attacks the sufficiency of a complaint and raises the question of whether a complaint states a cause of action upon which relief can be granted. 735 ILCS 5/2-615 (West 2012); Fox v. Seiden, 382 Ill.App.3d 288, 294 (2008). All well-pleaded facts must be taken as true, and any inferences should be drawn in favor of the nonmovant. Jones v. Brown-Marino, 2017 IL App (1st) 152852, ¶ 19. A section 2-615 motion to dismiss should not be granted unless no set of facts could be proved that would entitle the plaintiff to relief. Id. We review the dismissal of a plaintiff's claims de novo. Sandholm v. Kuecker, 2012 IL 111443, ¶ 55.

         ¶ 15 I. Claims Under the Pension Protection Clause (Count I)

         ¶ 16 The pension protection clause of the Illinois Constitution has been the focus of considerable public attention recently. As the State, cities, and other public employers attempt to rein in their pension obligations and workers and retirees attempt to secure all the benefits they have been promised, many of the disputes have made their way through our courts. The decisive legal mechanism in many of these cases has been the pension protection clause. See, e.g., In re Pension Reform Litigation, 2015 IL 118585, ¶ 89.

         ¶ 17 The pension protection clause of the Illinois Constitution states that "[m]embership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired." Ill. Const. 1970, art. XIII, § 5. The pension protection clause is intended to eliminate the uncertainty that surrounded public pension benefits (People ex rel., Sklodowski v. State, 182 Ill.2d 220, 228 (1998)) and to provide public employees with a basic protection against the complete abolition of their rights or the reduction of their benefits after they have already embarked upon employment (Miller v. Retirement Board of Policemen's Annuity, 329 Ill.App.3d 589, 597 (2001)).

         ¶ 18 A. Claims Based on the 1997, 2002, and 2003 Settlements and Amendments

         ¶ 19 The retirees argue that they are entitled to "lifetime healthcare coverage" "for each annuitant class, as it best was during their participation." For that to be the case, we would have to find that the Illinois Constitution's pension protection clause (Ill. Const. 1970, art. XIII, § 5) protected the benefit levels in the 1997, 2002, and 2003 amendments for life for any member of any subclass that participated in the plan while the particular amendment was in effect. The retirees' argument for permanent coverage on these terms has a significant emphasis on the Illinois Constitution's pension protection clause (Ill. Const. 1970, art. XIII, § 5) and the Illinois Supreme Court's decision in Kanerva v. Weems, 2014 IL 115811, so we begin there. However, we find that neither the Illinois Constitution nor the Kanerva decision extend the settlements' benefit levels to retirees beyond the temporal scope of those agreements.

         ¶ 20 The Illinois Supreme Court has interpreted the pension protection clause to protect not only the retirement annuity itself from diminution, but instead has held that all of the benefits flowing from one's participation in a public pension system are constitutionally protected. Kanerva v. Weems, 2014 IL 115811, ...

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